There is this small business in my area that is for sale for ~$1.2 Million. I know that the business is a bit struggling (and I know the reasons). As a customer in the sector, I know that there is demand and I have some ideas to increase the gross revenue and the profit margins. This is an absentee-run business with ~12 employees and a manager.
I have a full time job (in a different sector) and I want to keep it. I have never run a business but I have successfully managed big long-running projects. I have a CS degree but read some books on finance and business. I am married with a kid and we have a net worth of $500k. It is a bit scary to buy a million dollar business.
Question: I am curious if anyone has any suggestion on how to tell if it is okay to buy a business twice someone’s net worth. Is it too big of a step for a first business? Any suggestion on risk analysis or minimizing the risk here?
The listing only tells me that the gross revenue is 1.5m. I have not yet reached out for more information (because I know that they will ask me to sign an NDA and I was not yet ready for that step). This is an indoor playground business. By looking at some similar businesses, I guessed their profit margin as 6-7%. That is how I arrived at 100k/yr profit.
I am still investing how to buy. I don’t yet know if there will be a seller financing, that would be my first option. If not, maybe that’s already a red flag and I should reconsider this whole thing. I can afford putting down 100k. I can probably raise some more 100k from my network for down payment and get a loan for the rest.